When Ben Mizes offers real estate agents new business on condition that they agree to work for a third of their typical rate, he is not always treated with respect.
“There’s been a couple agents who’ve gone off on rants … told me I should be ashamed and don’t even know how I can sleep at night,” Mizes said.
On the other hand, most politely decline, he said. But some do accept. A few thousand have chosen to work with his company at this point, he said.
Mizes is the founder of Clever Real Estate, one of the newest online referral services for agents to emerge lately. The startup announced today a new $3.5 million Series A funding round, adding to the company’s $1.5 million in seed funding.
A private “paper brokerage” licensed in St. Louis, Missouri, the startup reels in prospective homesellers and buyers with a discount commission offer. Then it routes said leads to partner agents in exchange for a 25 percent referral fee, if and when a resulting transaction closes.
Yet many startups that have centered their value proposition around discount brokerage services have fallen by the wayside.
But Clever — whose founder once worked at such a failed startup, GoldenKey — appears to have gained at least some traction. That may be in part because it only makes referrals, and lets outside agents provide what is cast as full service.
Clever’s referrals to agents converted into over 700 transactions in 2018, according to Mizes.
Launched in May 2017, it expects that number to rise to 4,000 in 2019. And if everything goes as planned, it will jump to 20,000 in 2020, he said. Clearly, investors are bullish on the idea, based on today’s funding news.
Clever’s pitch to homesellers, which account for the vast majority of referrals it makes, is full service from a top-performing agent for a 1 percent listing fee or a minimum of $3,000 — whichever is greater. That’s a third of the typical listing fee in some markets.
But Clever’s headline fee excludes any offer of compensation made to buyer’s brokers.
Buy-side commissions are often 2.5 to 3 percent — which means sellers referred by Clever tend to end up effectively paying a 3.5 to 4 percent commission, rather than a commission closer to 5.5 or 6 percent.
“[Y]ou get the exact same level of services and support you’d expect in a traditional listing arrangement — but for a fraction of the cost,” Clever claims on its website.
Mizes concedes that Clever was initially concerned that its partner agents might not actually deliver on this promise. What if agents turned out to be reluctant to work as hard as they normally would for a deal that yields only a 0.75 percent commission (after Clever’s referral fee), rather than 2.5 or 3 percent?
But he said he has been pleased to see that this tends not to be the case. One reason, he said, is that agents are motivated to provide a high level of service to Clever referrals to maximize the chances of receiving subsequent referral business from those initial referrals. Plus, Clever will cut off partner agents if referrals report receiving poor service from them, he said.
And it’s not as if agents who partner with Clever are only doing discount business, Mizes said. They are earning typical commissions from most of their clients.
“We have agents doing $10,000 a month doing leads from Clever … in addition to normal [full commission] business,” he said.
Clever has sent leads to 5,000 agents so far, according to Mizes. It has relationships with both individual agents and brokers. About a quarter of its customers are agents with Keller Williams Realty brokerages, he said.
The startup joins a number of other online real estate referral services, including Homelight, Opcity (owned by realtor.com) and UpNest. Even Zillow has begun moving to a referral fee model. Clever stands out because it makes a steep discount commission offer right off the bat.
That raises a question: Why would agents choose to sign up for leads that they’re under contract to service at a steep discount, when they could get leads from other services that don’t require charging rock-bottom fees?
Mizes says part of the reason is that Clever does a better job making sure leads are highly qualified, minimizing the chances that agents will waste their time.
That’s been the experience of JC Young, an agent with eXp Realty North Texas.
She said the leads she’s gotten from Clever, 28 of which she said have turned into deals, tend to convert at rates much higher rates than other online leads. Perhaps as many as one in three result in transactions, she said.
She puts the conversion rate for other internet leads closer to 1 in 100. Young said she receives an unusually high level of support from Clever. For example, she can tell Clever if a lead isn’t responding. Then Clever might try to make contact, and, if successful, direct the lead back to her.
But diverging at least somewhat from Clever’s value proposition, Young doesn’t provide the “exact same level of service” to Clever leads as she does to clients that pay a typical commission. She provides full representation, listing photos and syndication, expert negotiation and other services, she said.
But she also expects sellers referred by Clever to do more of the heavy lifting. Unlike clients who pay a typical commission, she generally won’t attend their property photo shoots or closings. Nor, she said, will she generally create binders with property information for showings.
“There’s limited services as far as my interaction, personally being present,” she said.
Another reason some agents may sign up to receive Clever leads is that they may not be able to get as many leads as they would like from other referral services. Zillow Group, for one, has become more discerning with what agents it will take on as customers.
And for some high-volume agents with tech-powered lead-conversion machines, “the more, the merrier” is probably the best way to describe their view of referrals.
“A lot of the best agents have done referrals for us, for HomeLight, for UpNest because they build a system that lets them provide great service and handle lots of business,” he said.
Clever tries to recruit agents who rank in the top 5 to 2 percent of agents by transaction volume — and are “very hungry to grow their business,” he said. It focuses less on targeting the top 1 percent, he said. Those highest-flying agents may have all the full-commission business they could want and less use for referrals tied to discount rates.
Clever is not Mizes’ first real estate rodeo. He had a front-row seat to the failure of another startup that pushed discount real estate service: GoldenKey.
Broadcasting a mission to “blow up commissions,”GoldenKey began with a model in which partner agents would perform one-off services for flat fees. Then it transitioned to discount, full-service packages. Then it pivoted to sourcing deals for institutional single-family homebuyers, such as Invitation Homes.
But none of this seems to be able to keep the lights on. The company shuttered last year. Its technology and data, but not its team, were acquired by Landis, which helps institutional buyers buy and rent out properties.
Mizes said he worked on GoldenKey’s service for institutional buyers, not its agent services division. But one lesson he learned was that, “if you can’t provide someone with a great agent, it’s not going to work.”
Clever is putting more of a focus on only working with top-quality agents than what he said he observed at GoldenKey.
“Our thesis is you need full service, we’re just going to help you get it for less,” he said.
That may not be music to some agents’ ears. But that apparently hasn’t stopped a few thousand from dancing with Clever.
Choosing any commission revenue — no matter the long-term implications for the industry — rather than none has proven difficult to resist for many agents in a competitive environment. You can take it, or someone else can.
In a recent interview with the subscription tech analysis outlet Stratchery, Zillow co-founder and CEO Rich Barton said something that may fit Clever’s strategy. Barton was describing how his own Zillow Group has grown from a “baby elephant” to a creature so large that “you can’t be kicked out of the house.”
“[Y]ou basically take advantage of a highly fragmented, individually rationally-behaving industry, and provide incentives to some subset of them and those incentives end up securing your supply and helping you get big,” he said.
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